Investors who have come to us in the last three to four years are probably wondering if we’ve been here before. By here, we mean a stretch of significant underperformance relative to our benchmarks. The answer is, yes. Let’s review those prior circumstances to see if we can learn something about where we might be headed.
We believe that we must build a common stock portfolio which will float when the multiyear bear market creates a waterfall of selling among magnificent growth stocks and passive S&P 500 Index owners.
Karen Carpenter was one the greatest singers of my lifetime. One of her biggest hits was called, “Top of the World.” The key line of the song says, “I’m on top of the world looking down on creation and the only explanation I can find, is the love that I’ve found ever since you’ve been around, you most put me at the top of the world!”
As we welcome a new year and its many possibilities, it’s important to reflect on where the markets and investor psychology sit on the pendulum of greed and despair.
All portfolio managers practice a stock-picking discipline in which they make choices. Growth stock investors attempt to predict which companies will grow the most in the future and compare the growth they expect to what they have to pay to participate.
The Federal Trade Commission (FTC) recently blocked the merger of Albertson’s and Kroger, which are the two largest stand-alone grocery chains.
For us as investors, we can say that this is déjà vu all over again as we practice our stock picking discipline.
How does the euphoria for stocks in the days after the 1980 election contrast with today’s Trump election euphoria?
Dow Jones (publisher of The Wall Street Journal) announced that Nvidia (NVDA) will replace Intel (INTC) in the Dow Jones Industrial Average. Intel was brought in to replace Union Carbide four months and nine days before the peak in Intel’s stock price. Union Carbide became Dow Chemical via merger.
Two major labor unions, the Dock Workers Union and the Boeing Machinists Union, have attempted to reach an agreement with their employers on a contract. The dock workers agreement proposes an average 8.5% per year wage increase over six years, and the Boeing Machinists Union’s proposal is for an average 7.5% wage increase over four years.
Barry Bannister, Managing Director and Chief Equity Strategist at Stifel, put out an excellent research piece on future returns based on what industry folks call the “equity risk premium.”
We learned a long time ago that we wanted to know what smart professional investors were doing. It’s always better to know who is smart rather than being smart yourself. Therefore, we’ve constantly kept track of insider buying, what great investors like Warren Buffett and Carlos Slim were doing, and what the most successful hedge funds were up to. A recent chart stopped us in our tracks.
We’ve always admired the great artistry of David Byrne from the Band Talking Heads. My favorite song of theirs is “Once in a Lifetime.” We think this song can tell our readers a great deal about how to look at our portfolio as we navigate an expensive and maniacal S&P 500 Index environment.
My colleague Will Keenan recommended an outstanding book, The Professor, the Banker, and the Suicide King, by Michael Craig. The book is a short and entertaining read of how Andy Beal played the best poker players in the world heads-up. He not only gambled toe-to-toe, but he also reminded them that they were doing what everyone should think poker is: gambling.
One of the very popular technology companies in recent years has been CrowdStrike, Inc. It provides cybersecurity to numerous major technology companies including the top Artificial Intelligence (AI) players.
In a recent The Wall Street Journal article, Jason Zweig correctly pointed out that 85% of active stock-picking funds and ETFs had underperformed their benchmark.
Over the last four years, we have maintained that the U.S. middle-class consumer is on firmer ground than many believe. The first wave of inflation that seems to be receding is just that—the first wave of a set—and oil and gas companies are fundamentally well-positioned for the next decade.
We are contrarians and oddly crave the moments when history, psychology and mathematics get defied in the U.S. stock market. We believe this is one of those points in time.
We have gained a number of new investors and get regular vetting interest from investors who need to understand the roots of our stock-picking discipline.
The news of Bill Walton’s death from brain cancer hit me hard. In the Portland Memorial Coliseum, there were 12,665 seats, and I had one of those top-row nose-bleed seats for the sixth game of the NBA finals in 1977.
Back in 1993, a brilliant satirist by the name of Ivan Reitman produced a movie called Dave. It was the story of a life-threatening stroke besetting the President of the United States of America.
At the Berkshire Hathaway Annual Meeting we marked what we believe is the end of an era both for Berkshire and for the S&P 500 Index.
The most interesting thing about 1968-1969 was the agreement about the stock market future between the greatest growth investor at that time, T. Rowe Price, and the greatest value investor of all time, Warren Buffett.
Many investors are bullish, or not fearful, of the future of stock returns. At Smead Capital Management, we continue to explain to our investors how poor the outcomes will be. Some ask when this view will change.
As a child, baseball became the core of my life. Collecting baseball cards, watching games on TV, and playing in Little League and neighborhood games absorbed my time outside of grade school. Out of this came a desire to know baseball history and become a statistics junkie.
The U.S. Federal Government has set a net zero carbon goal by 2050. Tremendous resources have been applied with borrowed money to fund these goals and subsidize money-losing green investments.
William Thorndike’s book The Outsiders has been considered a classic for some time now. His story teaches readers about the business performance of Henry Singleton, Katherine Graham, John Malone and Daniel Burke.
In previous missives, we have gone into considerable detail regarding the historic ascent of index concentration, coupled with the heightened prevalence of passive investing.
The Sherman Antitrust Act was created to stop our democratic republic from being ruined by “the concentration of capital in vast combinations.” The fear was that if too much of the success of industry went to too few people, our system would get disrupted.
In studies, 90% of drivers think they are above average. We believe that 100% of the people who pick stocks for a living think they will be above average.
C.S. Lewis coined the term ‘chronological snobbery’. According to Lewis, the definition of chronological snobbery is “the uncritical acceptance of the intellectual climate of our own age and the assumption that whatever has gone out of date is on that count discredited.”
Warren Buffett regularly reminds his shareholders that interest rates are a gravitational pull to stock prices. History shows that the movement of stock prices and interest rates don’t necessarily happen simultaneously but play out over time.
A friend of our stock picking discipline reminded us of a very important force in the stock market. It was called the 70/20/10 rule, and it was promoted by Roger Edelman, Richard Evans and Gregory Kadlec in an early 2013 Financial Analysts Journal article.
The year 2008 and the subsequent Global Financial Crisis (GFC) stand as a watershed moment in the annals of our capitalist society. It was a bailout prompted by poor capital allocation, deficient risk management, and unchecked greed.
The most famous “Hail Mary” in American football history happened in 1984. On the very last play of the Boston College football game, an undersized quarterback named Doug Flutie threw a bomb into the end zone to teammate Gerald Whelan. Boston College had won the game!
The paradox that this marriage potential created at the college was that the odds are good, but the goods are odd. This is the statement that can be made for common stock investing today.
Watching Warren Buffett and Charlie Munger Saturday in Omaha caused us to think about a very popular 1960s TV show called, “The Dating Game.” Hosted by Jim Lange, the game was played with the host on one side of a wall with a male or female contestant.
In the early 2020s, the stock market looked much like basketball used to: a big man’s game. As examples, money management firms like Vanguard and Blackrock lumbered to higher heights of assets while the passive firms swallowed more market share.
To kick off the beginning of 2023, there continues to be a bias we see in equity investor portfolios. These portfolios have many of the traits investors see at the endpoints of the economy like software, consumer products and computer chips.
What must happen to make these stocks attractive to investors like us?
The news of the shocking OPEC+ announcement of a supply cut is saturating the minds of investors and market prognosticators.
We have been reminding everyone that we believe we are unwinding a financial euphoria episode that Charlie Munger called the biggest of his career, “because of the totality of it.”
The events that began with Thursday’s tumult in financial stocks and precipitated the FDIC takeover of Silicon Valley Bank and Signature Bank were swift.
There were many good things to think about from Warren Buffett’s letter to shareholders which came out recently. In this piece, we’d like to drill down on two subjects that Buffett highlighted.
As a young stockbroker in the 1980s, I was very enamored with T. Boone Pickens.
On February 5, 2023, Charlie Munger sat down as the Chairman Emeritus of the Daily Journal Corporation (DJCO) to answer questions from shareholders and the public.
We are closing in on what we think may be the question of the decade. If a majority of stock market capitalization in the US is passive or indexed, does this cause problems for stock markets?
A recession is two consecutive quarters of economic contraction.
In 1817, David Ricardo developed his theory of comparative advantage to explain why countries engage in trade together, even when one country has an absolute advantage.
As we start the year 2023, we are reminded of the profound poetry from the band, Echosmith, in the song, “Cool Kids.” It can teach us about what it takes to succeed in long-duration common stock investing currently.
